Regulatory headwinds, weakening demand weigh on US chem manufacturers – ACC survey

HOUSTON (ICIS)–Headwinds weighing on US chemical manufacturing have shifted from supply chain constraints to regulatory burdens amid continuing weak demand, according to the results of an American Chemistry Council (ACC) member survey.

In the most recent survey, where responses were collected between 10-26 July, chemical manufacturers said they are seeing deterioration in sales, production and output, with weakening demand across major customer end markets.

The results of the ACC’s Chemical Manufacturing Economic Sentiment Index (ESI) also reveal an increasingly pessimistic short-term outlook on the US economy and the regulatory environment.

ESI readings from Q2 indicate chemical manufacturers’ new orders growth was nearly flat, production levels decreased, and inventories of both raw materials and finished goods were worked down.

Producer costs related to inputs/raw materials, energy (for fuel and power) and transportation continued to retreat in Q2 while labour costs accelerated.

The concerns surrounding the regulatory environment have risen from previous surveys.

“Chemical manufacturers have been navigating an escalating level of regulatory burden on US-based operations, which threatens to erode competitiveness and hold back growth,” Emily Sanchez, ACC director for economics and data analytics, said.

“The most recent ESI reading of rising compliance and opportunities costs related to regulations is concerning” Sanchez said. “Chemical companies are challenged in an increasingly unfavorable business environment.”

The Q2 ESI reading shows regulatory pressure remains elevated for many companies and continues to increase for others.

ACC’s ESI reading on the change in the level of regulatory burden (compliance and opportunity costs) over Q2 (compared to Q1 this year) was notably high at 37.5.

A strong (+40.0) reading for the coming six months indicates chemical manufacturers are anticipating growing regulatory challenges.

Other highlights from the survey include:

• US chemical production fell in Q2. The ESI reading for production levels fell by 23 points, turning negative, but 58% of respondents said production levels were about the same.
• Growth in new orders slowed over Q2, but this allowed producers to continue working down the volume of order backlogs. Producers cited weaker demand from both domestic and export customers.
• The change in inventory levels was negative, suggesting continued destocking in the industry. The raw materials inventory levels index fell by 24.6 points as 45% of companies reported declines and 13% reported increases.
• Production costs related to inputs and raw materials, energy for fuel and power, and transportation have declined steadily over Q1 and Q2, the survey said, but labour costs continue to escalate.